Before you rush to buy a stock that's down 15-20% after earnings, understand one important rule: The 3-Day Rule! What is the 3-Day Rule, and why does it matter? Let me explain. When a stock gaps down sharply after earnings or bad news, wait at least 3 trading days before considering buying. Why? Large institutions managing millions of shares may need several sessions to reduce their positions. The initial gap down might be just the beginning of the selling pressure. Day 1: An initial bounce could be driven by short covering and aggressive dip buyers rather than sustained institutional demand. Days 2 and 3: Selling pressure may continue, and the stock could make new lows as investors reassess the news. After Day 3: Look for signs that selling pressure is fading and price is beginning to stabilize. Before buying, check: - Selling volume is shrinking - Price is holding above the recent low - You understand why the stock dropped - The fundamental thesis remains intact Remember, three days don't guarantee a bottom. Some stocks need several weeks or even months to build a proper base before beginning another sustained uptrend. If the business is fundamentally broken, the stock isn't necessarily on sale. It may simply be getting repriced. The market doesn't reward you for catching the exact bottom. Let the selling pressure fade, let the stock build a base, and let the trend confirm itself. Missing the bottom is far better than getting caught in a downtrend